Amid companywide layoffs and speculation about a possible sale, Putnam Investments' chief executive officer says he is confident that the company can get bigger by getting smaller.
Ed Haldeman, the Boston fund company's CEO, said in an interview Monday that the company hopes to gain assets by continuing to downsize in order to create a more "entrepreneurial" environment for money managers.
Putnam, a unit of Marsh & McLennan Cos., had nearly 5,000 employees and managed $209 billion of assets at Oct. 31. Both numbers were down sharply in the 12 months since federal and state officials charged Putnam with allowing market-timing trades in its mutual funds; the company managed $263 billion early in the trading scandal; and it had nearly 5,700 employees as recently as Dec. 31.
The company announced Monday that it will cut its work force across the board by about 100 jobs, a 2% reduction. Mr. Haldeman said he has reduced staff by 11% overall, including these layoffs, but that this is the largest mass layoff announced since he became chief executive last November.
"I think the experience over the past years has caused us to pay attention to make sure our expenses are in line with our revenue," Mr. Haldeman said. "We are taking a different approach to management. We are moving away from a highly centralized management structure to one that is flatter. It is a new philosophical decision to eliminate the structure and the support."
He added, "We want to make Putnam feel more entrepreneurial. We want to empower and build."
Mr. Haldeman said there is no plan for another large layoff but that reductions by attrition will continue.
"We have gotten a lot done, and we will continue to do it," he said. "Right now, we are very hesitant to add people. We prefer not to refill positions when people leave. We would rather assign their responsibility around the firm."
Mr. Haldeman said no one was laid off from Putnam's legal or compliance areas and only a handful of portfolio managers were let go.
"It is a number of management people and people in support areas," he said. "We have tried not to touch people that manage money or interact directly with clients."
The reduction is in addition to 70 job cuts Putnam made in October related to changes in its retirement plan administration business. Mr. Haldeman said most of the downsizing before October came from attrition, and he pointed out that only 26 of the 50 highest-paid employees at Putnam in March 2003 remain with the company.
The staff reductions are part of a strategy to improve the company, he said. Marsh & McLennan announced last week that it would lay off roughly 3,000 people. Mr. Haldeman said his 100 layoffs are a part of the 3,000 but that Putnam was not forced by its parent company to make the move.
"It was the decision of senior management that we could be a more effective organization and a more efficient investment management company with less people," he said.
"We want to flatten this organization," he added. "We want to remove the hierarchy. We are finding that with fewer people the effectiveness is improving. We found people were spending too much time in meetings and dealing with bureaucracy and policies. We want to take out the infrastructure and the layers and empower people."
Analysts continue to speculate that this downsizing is part of a Marsh & McLennan strategy to make Putnam more attractive for a potential sale.
"Putnam is trying to groom itself for an acquisition," said Elizabeth Rowe, an analyst at Find/SVP, a New York employee search firm. "It is a new theme in the industry. There are a lot of U.S. companies that are cutting product lines and getting rid of employees in an effort to look better for a potential acquisition."
Michael Cherkasky, Marsh & McLennan's chief executive officer, said last week that none of its major businesses is for sale. The giant insurance brokerage company is being sued by New York Attorney General Eliot Spitzer for allegedly rigging insurance bids.
Putnam has suffered significant asset outflows since the Securities and Exchange Commission sued it last fall, prompting the ouster of Mr. Haldeman's predecessor, Lawrence J. Lasser. The company agreed to a settlement with the SEC last November and to an eventual federal penalty of $40 million.
Marsh & McLennan said in its third-quarter earnings report last week that Putnam's revenue fell 16%, to $429 million, and operating income declined 60%, to $55 million, from the second-quarter levels. Putnam's assets under management have declined 23% since the third quarter of last year and 3.2% since June 30.
But the fund company has slowly been able to bring back investment customers and top investment managers.
In September, it announced that it had been rehired by the California State Teachers' Retirement System and the California Public Employees' Retirement System. Putnam was fired by Calpers and Calstrs as a money manager after the allegations about improper trading came out last year. It had managed $1.2 billion of international and domestic equities for Calpers and a $312 million large-cap growth account for Calstrs.
Mr. Haldeman said he is confident the company will be able to attract and retain investment professionals who like to work in a "flat" organization. For example, he said, it rehired Mark Pollard, who left Putnam in 2000 to run the European equity investment team for Jura Capital in London.
"He came back, and he said the principal reason he returned was because, before, he could only spend a small amount of time doing investments but now, in this structure, he is just managing money," Mr. Haldeman said. "He returned because this was the right environment now."
Mr. Haldeman said he is confident that Putnam can use its new strategy to increase its assets.
"Our No. 1 objective is to produce investment performance that is superior over the long term," he said. "If we do that well, we will be able to produce growth in our retail and institutional businesses."
